Posts Tagged ‘insider-trading’

A month ago, we ran a post featuring a handful of the latest odds on Intrade, including the chances (84% at the time) that Dominique Strauss-Kahn would be found guilty of at least one charge. Those odds have dropped below 10% in the last week, on the news that his accuser may have credibility issues. But when exactly did that price move start?

Reader Chris Reed wrote in asking us to look into the possibility that there was insider trading in the prediction markets on the DSK news. The initial New York Times piece that broke the story that the DSK trial was on the verge of collapse was first posted online Thursday night, June 30, before appearing on the front page of Friday's paper. The Times doesn't time-stamp its articles, but the Huffington Post does. Their story linking to the Times piece is time-stamped 9:38 PM ET.

It's funny -- when we ran a quorum recently asking what should be done about insider trading, no one mentioned cracking down on Congress. Maybe they should have?

A new working paper fromFeng Chi, an economics PhD. student at the University of Toronto, is called "Insider Trading on K-Street: Are Politicians Informed Traders?" Here's the abstract:

I investigate whether politicians take advantage of their privileged information that comes with their positions in power. Analyzing the trading records of Congressional members, I find that informed trades beat the market by 8.2%. As these gains accrue over the short term, my findings are suggestive of informed trading based on time-sensitive information.

And a couple of choice paragraphs:

Despite the potential for exploitation, Congressional members are generally free to invest in companies they help oversee. In addition, existing insider-trading laws do not apply to lawmakers. Probably to no one’s surprise, proposed bills to eliminate insider trading among Congressional members garnered little support on Capitol Hill.

Mr. Rajaratnam is estimated to have paid as much as $40 million for his defense, according to people familiar with the matter and some lawyers not affiliated with the case, about two-thirds of the amount prosecutors said Galleon made from the insider trading addressed in the charges.

I bet I could have gotten him convicted on all 14 counts for $5 million, and I'm not even a lawyer.

As I type these words, the biggest insider-trading trial in years, that of Raj Rajaratnam, has just gone to the jury. I haven't followed the trial too closely, but the gist is evident: the line between "insider trading" and the legitimate, if sharp-elbowed, acquisition of useful trading information is extremely blurry. This is hardly the only insider case at the moment. Preet Bharara, U.S. Attorney for the Southern District of New York, famously said last fall that "illegal insider trading is rampant and may even be on the rise." So it seemed a good time to put together a Freakonomics Quorum and ask a couple of straightforward questions.